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Another Defence Budget Mess By Howard Wheeldon, FRAeS, Wheeldon Strategic Advisory Ltd.

The old adage that there are few votes in defence may well be as true today as it ever was but while few in Government or in Her Majesty’s Opposition are in any mood to listen, cries to spend more on defence are about to get louder.

Sadly, there can be little doubt that whatever our politicians may tell us, UK defence today is in a mess. Those of us who specialise in the subject professionally or otherwise have long accepted that at some point the chickens would come home to roost on ‘ambitious’ equipment purchase plans that were mixed with hoped for savings across the whole military spectre than had not even been discussed let alone costed in detail. Now it seems that the chickens really have come home to roost and yet for all that, the Government continues to be in almost complete denial.

Credit where credit is due though and the current Secretary of State for Defence, Sir Michael Fallon, his then Minister of Defence Procurement, Philip Dunn, senior members of our armed forces, civil servants in the Treasury, Cabinet Office and MOD are all deserving of considerable praise for the work that they did in the lead-up to SDSR 2015 and in finding a way or reversing the damaging cuts to defence that came with SDSR 2010 and that had so seriously reduced the ability of the military to do all that is constantly demanded of it.

The bottom line is that within the current stretched albeit rising defence budget what was promised within SDSR 2015 and the separate Equipment Plan are unaffordable. We need also to remember that although rising by £500 million per annum through to 2021, a defence budget of £35.1 billion for 2015/16 rising to £39.7 billion by 2021 (inclusive of £2.1 billion from the Joint Security Fund by the end of the period) replete with additional expense switched to defence from other government departments is simply not enough.

In an attempt to put some clarity on the defence budget issue, The Times on Saturday ran a comprehensive story claiming that the military was now fighting for what the newspaper headlined as a potential “£20 billion cash crisis”.

Without specific confirmation from the MOD I am, at this stage, unable to confirm whether the ‘£20 billion’ shortfall figure quoted above is realistic or not but my experience provides a strong belief that deficit of this level may well prove to be correct in the months ahead, well before the next formal SDSR 2020 review is planned.

If so, will this lead to the possibility that the next government automatically conducting a new defence and security review? A Labour administration would be obliged to do this and the party has already confirmed that it would conduct a full review of defence. However, a Conservative administration would not automatically be required to hold yet another defence review although such is the seriousness of the situation I fear that unless there was to be a prior agreement with the Treasury agreeing that such is the marked change in defence situation combined also within the context of rising geo-political tensions, that the only way out of the present situation would be to balance the books by making a one off addition combined with further increasing the defence budget.

Whatever, there can in my view be no additional pressure placed on defence by whoever the next Chancellor of the Exchequer is. Alternatively, such appears to be the seriousness of the situation particularly in respect of the Royal Navy, that the next Secretary of State for Defence whoever that happens to be and whatever political party they represent, will have little option but to announce the intention of holding another full scale defence and security review as soon as next month.

The bad option would be to push back almost out of sight a number of equipment procurement plans. While there is of course bound to be a degree of programme push back, such is the weakened state of UK defence today that further delays in introduction of required new defence capability are no longer a sensible option. This isn’t just a matter of equipment capability either, shortages of trained personnel, particularly engineers and technicians, retention of highly qualified military professionals due to changes in the offer and pensions that followed SDSR 2010 and that have subsequently only been partly addressed, low morale combined with poor quality and lack of sufficient funding for the defence estate and training are serious weaknesses that must be addressed. In short, while affordability matters, the new Government must give more support and funding to defence.

We know that from the Public Accounts Committee’s recent endorsement of the National Audit Office scrutiny and of which I have previously written in relation to the costed £178 billion ten-year equipment plan (2016 to 2026) the belief exists that the £10.7 billion set aside in SDSR 2015 to provide so-called ‘headroom’ to planned spend on equipment capability over the period of the ten year plan has already been all but been used up. There is, it seems, nothing left to meet emerging threats that may or may not arise over the next few years although the reality for most that have a modicum of common sense is that a £36 billion defence budget is running at substantially less now than it needs to be.

Apart from suggesting that Labour would be downright dangerous for defence, a view that with the current party leader, most of us reading this would share, first and foremost and as I wrote a few weeks ago, we need honesty from Government. It is simply not on telling us that all is well when the situation is clearly the opposite. Constantly repeating the claim that we are spending 2% of GDP on defence and that the Government is increasing the annual budget for defence by £500 million in each of the years 2016 to 2021, without being open and honest of the reality of the situation is just not acceptable. Defence is supposed to be the priority of Government and yet this one like several of its predecessors is, it seems, burying its head in the sand on defence and doing all that it can to keep defence away from the mainstream election agenda.

In addition, having created the ridiculous 2% of GDP marker ahead of the 2014 NATO Summit in Wales, the Government needs to change the message about defence as a percentage of GDP by admitting what it has included to enable the UK to stay at 2%. Yes, other European NATO members must also increase spending defence as well.

The pity is that despite the need to keep banging the drum, if I have learned anything over the past fifty years from either following defence or being professionally involved, it is that most usually governments see defence as something to cut. That is a constant battle that we have to face.

It has been noticeable through throughout the past year that pressure on all three main sections of our armed forces to save further planned billions through cost cutting effort has been intensified. I have previously talked about the dangers of pushing equipment procurement programmes back not just from a military perspective but also from a rising cost perspective as well. In the meantime it is noticeable that the MOD has been doing just that – pushing back or delaying confirmation of planned equipment capability order announcements.

For instance, despite a 2020 target date for initial operating capability to be achieved by the first of the two Queen Elizabeth class carriers in build, it seems that despite further confirmation in SDSR 2015 of a plan to acquire 48 F-35 Joint Strike Fighter (B) ‘Lightning’ STOVL variants (a through life acquisition process that includes a total of 138 F-35’s of either A or B variant being acquired) the MOD has, as yet as far as I am aware, only ordered a mere 14 of F-35 (B) variants. These aircraft, most of which have or will have been delivered by the end of next year, are intended to be deployed on the QE2 carrier or based at RAF Marham.

While some projects announced in SDSR 2015 such as the intention to order 9 x Boeing P8 Poseidon Maritime Patrol Aircraft have been ordered along with separate completed agreements covering the funding and building of required the infrastructure at RAF Lossiemouth, I remain unclear as to whether formal contracts have been signed covering the intention to ‘acquire’ 50 AH-64D Apache helicopters that will replace the existing Apache WAH-64D variant. However, delays in the anticipated order confirmation of the first Type 26 Frigate for the Royal Navy are more than likely due to the General Election as opposed to further pushing back due to budget constraints.

The Times also mentioned delayed ordering of the Ajax armoured fighting vehicle for the Army although as I am unclear what the present status on this capability is I will make no further comment. The Times article also emphasised that there were now doubts in respect of achieving the SDSR 2015 pledge of building a 50,000 strong expeditionary fighting force (Joint Force 2025) capable of deployment and that options of looking at the possibility of cutting the size of the Army to 75,000 from a current intended level of 82,000. I know not definitely whether any or all of what was said in the report is actually true but I can say that I personally believe that the majority of what has been said is most probably true.

We have known since SDSR 2015 was announced that there was a requirement by the three branches of the military to save £11 billion over the following five years in order to ensure that all the planned capability announced in that defence review could be acquired. This was intended to be achieved by further cutting the number of civil servants involved in defence together with base closures and other real estate sale benefits. My best guess is that less than half of the required amount has been found.

Those with reasonable memories will remember that while it is absolutely true that in April 2010 the Coalition Government inherited a £38 billion ‘black hole’ from its predecessor Labour Government, we were left in no uncertainty two years later that the ‘black hole’ in the defence budget had been filled. I well remember listening to the now Foreign Secretary, Philip Hammond tell several of us in a private meeting in May 2012 when he was still Secretary of State for Defence that through actions resulting from decisions taken in SDSR 2010 by his immediate predecessor, Dr. Liam Fox and by himself, that the ‘black hole’ in the defence budget had been eliminated.

Not surprisingly, given that only eighteen months had passed since publication of SDSR 2010 in November of that year, few actually believed that the ‘black hole’ had actually been eliminated.  Nevertheless, others took the view that given the severity and obliteration of so many aspects of defence taken within SDSR 2010, that notion was entirely possible. Note too that rather than roll budget underspend that occurred for four years on the trot after 2010, that as much as £5 billion of money previously allocated for defence budget spend between the years 2011 and 2015 was given back to the Treasury.

While I suspect that the Tory Party manifesto will signal an increase in the defence budget (part of which assumption is already in the system) and they may well attempt to claim an intention to move defence spending up to 3% of GDP, what they won’t tell us is a likely intention to fill the defence budget up with additional aspects currently to be found in other departmental budget. One automatically thinks here of the possibility of adding the 0.7% of GDP currently spent on foreign aid and maybe also the Single Intelligence Account and National Cyber Security Programme that currently fund important organisations such as GCHQ, MI5 and MI6?

While it is perfectly true that the defence budget is rising by £500 million a year through to 2020/1 we should not ignore that the present Government have added in military pensions, announced spending increases in cyber security and increasing the size of GCHQ that will now be funded within the overall defence budget and that, unlike funding of present generation of Vanguard class SSBN (Ship, Submersible, Ballistic, Nuclear) submarines (SSBN’s)  Trident submarines, the next generation of Successor submarines will be funded through the defence budget as opposed to a Treasury reserve that had been used to fund the Vanguard based deterrent capability.

I do not anticipate that any of the political parties competing for votes in this election will promise to end the funding problems but I am bound to fear that unless defence gets a better hearing during the campaign the problem will get worse rather than better. Of course, the General Election process itself has allowed various urgently needed procurement programmes to be pushed even further back and the real dangers for me are that through the campaign we see messaging and promising of more for defence than there is any real intent to deliver.

If there is one thing that the present Secretary of State for Defence, Sir Michael Fallon has been consistent on over the past couple of years it is absolute denial that there is anything wrong with defence. True, he has been a safe pair of hands ion the tiller and unlike his predecessor, he has done nothing to further weaken defence capability. SDSR 2015 had to some extent reversed a process of decline that had begun with SDSR 2010 or indeed, some would say with almost every defence review that has taken place since 1955.

Make no mistake, defence is once again in a bad place and it is up to all of us to do what we can to raise its profile over the next few weeks ahead of the General Election on June 8th.

(CHW – London – 3rd May 2017)

Howard Wheeldon FRAeS

Wheeldon Strategic Advisory Ltd,

M: +44 7710 779785

Skype: chwheeldon



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